South Korea's semiconductor industry in the Honam region expected to save up to 1 trillion won on electricity bills... petrochemical and steel sectors also breathe easier

As the government pushes to reform the electricity rate system by cutting industrial electricity rates in local areas by up to 10%, it is expected that companies located outside the capital region will see a significant reduction in their electricity bill burdens. The Honam semiconductor industrial complex is projected to achieve annual savings of 800 billion to 1 trillion won, while steel and petrochemical companies struggling with industrial slowdowns are also expected to benefit from rate reductions ranging from hundreds of billions to trillions of won.

According to the Ministry of Climate, Energy and Environment and KEPCO on the 26th, the government plans to introduce an "Industrial Regional Electricity Rate System" by the end of this year, which will divide the country into four major regions and reduce industrial electricity rates in each region by up to 10%. The plan aims to disperse power demand concentrated in the Seoul metropolitan area by lowering electricity rates in local areas while alleviating the electricity bill burden on companies to enhance their industrial competitiveness.

Under the reform proposal, the rate reduction per kWh (kilowatt-hour) by region is as follows: Northern Seoul Metropolitan Area (Seoul Gangbuk, Incheon, Northern Gyeonggi) 6–10 won; Southern Seoul Metropolitan Area (Seoul Gangnam, Southern Gyeonggi) 0–1 won; Central Region (Chungbuk, Chungnam, Gangwon) 10–15 won; and Southern Region (Gyeongbuk, Gyeongnam, Jeonbuk, Jeonnam) 13–18 won. Considering the average industrial electricity rate last year was 181.9 won per kWh, the Southern Region, where renewable energy and nuclear power plants are concentrated, is expected to see a maximum reduction of 10%.

The Ministry of Climate estimated that the reform will reduce the industrial sector's electricity bill burden by approximately 2.8 trillion won annually. Companies with higher electricity consumption and those located farther from the Seoul metropolitan area will receive greater rate reduction benefits.

The Honam semiconductor industrial complex is expected to be the biggest beneficiary. The government plans to operate four semiconductor factories at the Gwangju military airfield site through three mega-projects. The power required for the operation of these four facilities is estimated at 6.3 gigawatts (GW).

When converted to annual electricity volume, the Honam semiconductor sector's power demand amounts to approximately 55 terawatt-hours (TWh). Applying last year's industrial electricity rate unit price (181.9 won), the annual electricity cost is estimated at around 10 trillion won. If a maximum 10% rate reduction is applied in the Honam region, this would result in annual savings of 1 trillion won.

The Next Group, an energy policy research institute, estimates that by 2031, when all four Honam semiconductor factories are fully operational, power consumption will reach 46.9 TWh. Based on this figure, the total annual electricity cost is projected at 8.5 trillion won, with savings from a maximum 10% rate reduction estimated at 850 billion won.

Steel and petrochemical companies, which are also facing difficulties due to industrial slowdowns, are expected to see significant electricity bill savings. This is because their facilities are mostly located in local areas and they are representative high-power-consuming industries.

According to the Energy Statistics Yearbook, as of 2024, power consumption was 54 TWh for the petrochemical industry and 22 TWh for the steel industry. Calculating based on current electricity rate unit prices, the total annual electricity costs are approximately 9.8 trillion won for petrochemicals and 4 trillion won for steel. Assuming an average 5% rate reduction, savings would be 490 billion won for petrochemicals and 200 billion won for steel; applying a maximum 10% reduction would yield savings of 980 billion won and 400 billion won, respectively.

Individual companies are also expected to save hundreds of billions to trillions of won in electricity costs. Park Seong-bong, a researcher at Hana Securities, stated, "If the differentiated electricity rate plan is actually implemented, it will significantly benefit steel companies." He added, "Hyundai Steel is expected to save up to 145 billion won annually, while POSCO's steel business division could see savings of up to 49.6 billion won."

Experts and industry representatives who attended the public hearing held that day to discuss the electricity rate reform proposal positively evaluated the plan's potential to alleviate corporate burdens through rate reductions and enhance industrial competitiveness.

Dankook University Professor Heo Yun-ji said, "This industrial regional rate system has significance in providing a signal for demand dispersion amid supply-demand imbalances between regions." She added, "For actual demand dispersion effects to materialize, various policy supports such as the development of industrial location infrastructure must be implemented alongside the rate system."

Kim Jae-hoon, head of the Korea Chemical Industry Association, remarked, "The petrochemical industry is currently struggling with accumulated operating losses due to oversupply and rising electricity rates, so this electricity rate reform is like a welcome rain in a drought." He further stated, "If package support measures such as expanded tax deductions or financial assistance are implemented alongside this reform, the policy effects will be doubled."